Accounting Principles - Chapter 1 (Accounting in Action)

Thirteen Edition
Chapter 1 - Accounting in Action

1. Accounting Principles Thirteenth Edition Weygandt Kimmel Kieso Chapter 1 Accounting in Action Prepared by Coby Harmon University of California, Santa Barbara Westmont College

2. Chapter Outline Learning Objectives LO 1 Identify the activities and users associated with accounting. LO 2 Explain the building blocks of accounting : ethics, principles , and assumptions. LO 3 State the accounting equation, and define its components. LO 4 Analyze the effects of business transactions on the accounting equation. LO 5 Describe the four financial statements and how they are prepared. 2 Copyright ©2018 John Wiley & Son, Inc.

3. Accounting Activities and Users 3 Copyright ©2018 John Wiley & Son, Inc. Accounting consists of three activities Identification – Select economic events (transactions) Recording - Record, classify, and summarize Communication Prepare accounting reports Analyze and interpret for users LO 1

4. Who Uses Accounting Data 4 Copyright ©2018 John Wiley & Son, Inc. Internal Users Finance - Is cash sufficient to pay dividends to Microsoft stockholders? Marketing – What price should Apple charge for an iPad to maximize net income ? Human Resources – Can General Motors afford to give its employees pay raises? Management - Which PepsiCo product line is most profitable? Should any products be eliminated? LO 1

5. Who Uses Accounting Data 5 Copyright ©2018 John Wiley & Son, Inc. External Users Investors Is General Electric earning satisfactory income? How does Disney compare in size and profitability with Time Warner ? Creditors – Will United Airlines be able to pay its debts as they come due? LO 1

6. 6 Copyright ©2018 John Wiley & Son, Inc. Indicate whether each of the statements is true or false . The three steps in the accounting process are identification , recording, and communication. Bookkeeping encompasses all steps in the accounting process. Accountants prepare, but do not interpret, financial reports. The two most common types of external users are investors and company officers. Managerial accounting focuses on reports for internal users. LO 1 DO IT! 1 Basic Concepts Solution : 1. True 2. False 3. False 4. False 5. True

7. The Building Blocks of Accounting 7 Copyright ©2018 John Wiley & Son, Inc. Ethics in Financial Reporting F inancial scandals include: Enron , WorldCom , HealthSouth , AIG , and other companies Regulators and lawmakers concerned that economy would suffer if investors lost confidence in corporate accounting Congress passed Sarbanes-Oxley Act (SOX ) Effective financial reporting depends on sound ethical behavior LO 2

8. 8 Copyright ©2018 John Wiley & Son, Inc. Ethics are the standards of conduct by which one's actions are judged as: right or wrong honest or dishonest fair or not fair all of these options LO 2 Ethics in Financial Reporting

9. Generally Accepted Accounting Principles 9 Copyright ©2018 John Wiley & Son, Inc. LO 2 Various users need financial information The accounting profession has developed standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Owner's Equity Statement Statement of Cash Flows Note Disclosure Generally Accepted Accounting Principles (GAAP)

10. Generally Accepted Accounting Principles 10 Copyright ©2018 John Wiley & Son, Inc. LO 2 Standards that are generally accepted and universally practiced. These standards indicate how to report economic events. Standard-setting bodies : Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC) International Accounting Standards Board (IASB)

11. 11 Copyright ©2018 John Wiley & Son, Inc. Historical Cost Principle ( or cost principle) R ecord assets at their cost. Fair Value Principle A ssets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability ) Selection of which principle to follow generally relates to trade-offs between relevance and faithful representation . LO 2 Measurement Principles

12. 12 Copyright ©2018 John Wiley & Son, Inc. Monetary Unit Assumption Include in accounting records only transaction data that can be expressed in terms of money Economic Entity Assumption Activities of entity be kept separate and distinct from activities of its owner and all other entities Proprietorship Partnership Corporation LO 2 Assumptions Forms of Business Ownership

13. 13 Copyright ©2018 John Wiley & Son, Inc. LO 2 Proprietorship Partnership Corporation Owned by one person Owner is often manager/operator Owner receives any profits, suffers any losses, and is personally liable for all debts Owned by two or more persons Often retail and service-type businesses Generally unlimited personal liability Partnership agreement Ownership divided into shares of stock Separate legal entity organized under state corporation law Limited liability Forms of Business Ownership

14. 14 Copyright ©2018 John Wiley & Son, Inc. Combining the activities of Kellogg and General Mills would violate the cost principle economic entity assumption monetary unit assumption ethics principle. LO 2 Assumptions

15. 15 Copyright ©2018 John Wiley & Son, Inc. A business organized as a separate legal entity under state law having ownership divided into shares of stock is a Proprietorship Partnership Corporation sole proprietorship LO 2 Assumptions

16. Solution : 1. True 2. True 3. False 16 Copyright ©2018 John Wiley & Son, Inc. Indicate whether each of the statements is true or false . Congress passed the Sarbanes-Oxley Act to reduce unethical behavior and decrease the likelihood of future corporate scandals. The primary accounting standard-setting body in the United States is the Financial Accounting Standards Board (FASB ). The historical cost principle dictates that companies record assets at their cost. In later periods, however , the fair value of the asset must be used if fair value is higher than its cost. LO 2 DO IT! 2 Building Blocks of Accounting

17. Solution : 1. True 2. True 3. False 4. False 5. True 17 Copyright ©2018 John Wiley & Son, Inc. Indicate whether each of the statements is true or false . Relevance means that financial information matches what really happened; the information is factual. A business owner’s personal expenses must be separated from expenses of the business to comply with accounting’s economic entity assumption. LO 2 DO IT! 2 Building Blocks of Accounting

18. 18 Copyright ©2018 John Wiley & Son, Inc. Basic Accounting Equation Provides underlying framework for recording and summarizing economic events Assets are claimed by either creditors or owners If a business is liquidated, claims of creditors must be paid before ownership claims LO 3 The Accounting Equation Assets = Liabilities + Owner's Equity

19. 19 Copyright ©2018 John Wiley & Son, Inc. Assets Resources a business owns Provide future services or benefits Cash , Supplies, Equipment, etc . LO 3 The Accounting Equation Assets = Liabilities + Owner's Equity

20. 20 Copyright ©2018 John Wiley & Son, Inc. Liabilities Claims against assets (debts and obligations) Creditors (party to whom money is owed) Accounts Payable, Notes Payable, Salaries and Wages Payable, etc . LO 3 The Accounting Equation Assets = Liabilities + Owner's Equity

21. 21 Copyright ©2018 John Wiley & Son, Inc. Owner’s Equity Ownership claim on total assets Referred to as residual equity Investment by owners and revenues (+) Drawings and expenses (-) LO 3 The Accounting Equation Assets = Liabilities + Owner's Equity

22. 22 Copyright ©2018 John Wiley & Son, Inc. Increase in Owner’s Equity Investment by Owner. Assets the owner puts into the business Revenues. Increases in assets or decreases in liabilities resulting from sale of goods or performance of services in normal course of business. LO 3 The Accounting Equation Equation Assets = Liabilities + Owner's Equity Expanded Equation Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses ILLUSTRATION 1.6 Expanded accounting equation

23. 23 Copyright ©2018 John Wiley & Son, Inc. Decrease in Owner’s Equity Drawings. A withdraw of cash or other assets for personal use Expenses. Cost of assets consumed or services used in the process of earning revenue LO 3 The Accounting Equation Equation Assets = Liabilities + Owner's Equity Expanded Equation Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues - Expenses ILLUSTRATION 1.6 Expanded accounting equation

24. 24 Copyright ©2018 John Wiley & Son, Inc. Classify the following items as investment by owner, owner’s drawings, revenues, or expenses. Then indicate whether each item increases or decreases owner’s equity. LO 3 DO IT! 3 Owner’s Equity Effects Classification Effect on Equity 1. Rent Expense Expense Decrease 2. Service Revenue Revenue Increase 3. Drawings Owner’s Drawings Decrease 4. Salaries and Wages Expense Expense Decrease

25. 25 Copyright ©2018 John Wiley & Son, Inc. Transactions are a business’s economic events recorded by accountants. May be external or internal Not all activities represent transactions Have a dual effect on the accounting equation LO 4 Analyzing Business Transactions Analyze business transactions Journalize Post Trial Balance Adjusting Entries Adjusted Trial Balance Financial Statements Closing Entries Post-Closing Trial Balance

26. 26 Copyright ©2018 John Wiley & Son, Inc. Illustration: Are the following events recorded in the accounting records? LO 4 Analyzing Business Transactions Event Purchase computer Criterion Discuss product design with potential customer Pay rent Record/ Don’t Record ILLUSTRATION 1.7 Transaction identification process Yes No Yes Is the financial position (assets, liabilities, or owner’s equity) of the company changed ?

27. Transaction Analysis 27 Copyright ©2018 John Wiley & Son, Inc. Transaction 1. Ray Neal decides to start a smartphone app development company which he names Softbyte. On September 1, 2020, he invests $15,000 cash in the business. This transaction results in an equal increase in assets and owner’s equity. LO 4 Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 3

28. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 28 Copyright ©2018 John Wiley & Son, Inc. Transaction 2. Softbyte purchases computer equipment for $7,000 cash. LO 4

29. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 29 Copyright ©2018 John Wiley & Son, Inc. Transaction 3. Softbyte Inc. purchases for $1,600 headsets and other accessories expected to last several months. The supplier allows Softbyte to pay this bill in October. LO 4

30. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 Service Revenue +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 30 Copyright ©2018 John Wiley & Son, Inc. Transaction 4. Softbyte receives $1,200 cash from customers for app development services it has performed. LO 4

31. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 Advertising Expense -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 31 Copyright ©2018 John Wiley & Son, Inc. Transaction 5. Softbyte Inc. receives a bill for $250 from the Daily News for advertising on its online website but postpones payment until a later date. LO 4

32. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 Service Revenue +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 32 Copyright ©2018 John Wiley & Son, Inc. Transaction 6. Softbyte performs $3,500 of services. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account. LO 4

33. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 Rent Expense -600 -900 Salaries and Wage Expense -900 -200 Utilities Expense -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 33 Copyright ©2018 John Wiley & Son, Inc. Transaction 7. Softbyte pays the following expenses in cash for September: office rent $600, salaries and wages of employees $900, and utilities $200. LO 4

34. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 34 Copyright ©2018 John Wiley & Son, Inc. Transaction 8. Softbyte pays its $250 Daily News bill in cash. The company previously (in Transaction 5) recorded the bill as an increase in Accounts Payable. LO 4

35. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 35 Copyright ©2018 John Wiley & Son, Inc. Transaction 9. Softbyte receives $600 in cash from customers who had been billed for services (in Transaction 6). LO 4

36. Assets Liabilities Owner’s Equity No. Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$15,000 +$15,000 2 -7,000 +$7,000 3 +$1,600 +$1,600 4 +1,200 +$1,200 5 +250 -$250 6 +1,500 +$2,000 +3,500 7 -600 -600 -900 -900 -200 -200 8 -250 -250 9 [phone] -1,300 -$1,300 $ 8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 - $1,300 + $4,700 - $1,950 36 Copyright ©2018 John Wiley & Son, Inc. Transaction 10. Ray Neal withdraws $1,300 in cash in cash from the business for his personal use. LO 4 $18,050 $18,050

37. 37 Copyright ©2018 John Wiley & Son, Inc. Each transaction analyzed in terms of effect on: Three components of basic accounting equation Assets Liabilities owner’s equity Specific types of items, such as Cash Two sides of equation must always be equal LO 4 Summary of Transactions

38. 38 Copyright ©2018 John Wiley & Son, Inc. Transactions made by Virmari & Co., a public accounting firm , for the month of August are shown below . Prepare a tabular analysis which shows the effects of these transactions on the expanded accounting equation, similar to that shown in Illustration 1.8. The owner invested $25,000 cash in the business. The company purchased $7,000 of office equipment on credit. The company received $8,000 cash in exchange for services performed. The company paid $850 for this month’s rent. The owner withdrew $1,000 cash for personal use. LO 4 DO IT! 4 Tabular Analysis

39. Assets Liabilities Owner’s Equity No. Cash + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$25,000 +$25,000 2 3 4 5 39 Copyright ©2018 John Wiley & Son, Inc. Transaction 1. The owner invested $25,000 cash in the business . LO 4 DO IT! 4 Tabular Analysis

40. Assets Liabilities Owner’s Equity No. Cash + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$25,000 +$25,000 2 +$7,000 +$ 7,000 3 4 5 40 Copyright ©2018 John Wiley & Son, Inc. Transaction 2. The company purchased $7,000 of office equipment on credit. LO 4 DO IT! 4 Tabular Analysis

41. Assets Liabilities Owner’s Equity No. Cash + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$25,000 +$25,000 2 +$7,000 +$ 7,000 3 +8,000 Service Revenue +$8,000 4 5 41 Copyright ©2018 John Wiley & Son, Inc. Transaction 3 . The company received $8,000 cash in exchange for services performed. LO 4 DO IT! 4 Tabular Analysis

42. Assets Liabilities Owner’s Equity No. Cash + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$25,000 +$25,000 2 +$7,000 +$ 7,000 3 +8,000 +$8,000 4 -850 Rent Expense -$850 5 42 Copyright ©2018 John Wiley & Son, Inc. Transaction 4. The company paid $850 for this month’s rent. LO 4 DO IT! 4 Tabular Analysis

43. Assets Liabilities Owner’s Equity No. Cash + Equipment = Accounts Payable + Owner's Capital - Owner's Drawings + Revenue - Expense 1 +$25,000 +$25,000 2 +$7,000 +$ 7,000 3 +8,000 +$8,000 4 -850 -$850 5 -1,000 -$1,000 $ 31,150 + $7,000 = $7,000 + $25,000 - $1,000 + $8,000 - $850 43 Copyright ©2018 John Wiley & Son, Inc. Transaction 5 . The owner withdrew $1,000 cash for personal use. LO 4 $31,150 $31,150 DO IT! 4 Tabular Analysis

44. The Four Financial Statements 44 Copyright ©2018 John Wiley & Son, Inc. LO 5 Companies prepare four financial statements: Income Statement Owner's Equity Statement Balance Sheet Statement of Cash Flows

45. 45 Copyright ©2018 John Wiley & Son, Inc. Net income will result during a time period when: assets exceed liabilities assets exceed revenues expenses exceed revenues revenues exceed expenses LO 5 Financial Statements

46. 46 Copyright ©2018 John Wiley & Son, Inc. LO 5 Financial Statements Income Statement Revenues $4,700 Service revenue Expenses Salaries and wages expense 900 Rent expense 600 Advertising expense 250 Utilities expense 200 Total expenses 1,950 Net income $2,750 Owner’s Equity Statement Owner’s capital, September 1 $ 0 Add: Investments 15,000 Add: Net income 2,750 Less: Drawings 1,300 Owner’s capital, September 30 $16,450 ILLUSTRATION 1.9 Financial statements and their interrelationships Softbyte statements for the Month Ended September 30, 2020

47. 47 Copyright ©2018 John Wiley & Son, Inc. LO 5 Financial Statements Owner’s Equity Statement Owner’s capital, September 1 $ 0 Add: Investments 15,000 Add: Net income 2,750 Less: Drawings 1,300 Owner’s capital, September 30 $16,450 Balance Sheet Assets Cash $ 8,050 Accounts receivable 1,400 Supplies 1,600 Equipment 7,000 Total assets $18,050 Liabilities and Owner’s Equity Accounts payable $ 1,600 Owner’s capital 16,450 Total liabilities and equity $18,050 ILLUSTRATION 1.9 Financial statements and their interrelationships Softbyte statements for the Month Ended September 30, 2020

48. 48 Copyright ©2018 John Wiley & Son, Inc. LO 5 Financial Statements Balance Sheet (partial) Assets Cash $ 8,050 Accounts receivable 1,400 Supplies 1,600 Statement of Cash Flows Cash flows from operating activities Cash receipts from revenues 3,300 Cash payments from expenses (1,950) Net cash from operating activities 1,350 Cash flows from investing activities Purchase of equipment (7,000) Cash flows from financing activities Investments by owner 15,000 Drawings by owner (1,300) Net cash from financing activities 13,700 Net increase in cash 8,050 Cash at beginning of period Cash at end of period $ 8,050 ILLUSTRATION 1.9 Financial statements and their interrelationships Softbyte statements for the Month Ended September 30, 2020

49. Income Statement 49 Copyright ©2018 John Wiley & Son, Inc. Reports revenues and expenses for a specific period of time Lists revenues first, followed by expenses Shows net income (or net loss) Does not include investment and withdrawal transactions between owner and business in measuring net income LO 5

50. Owner’s Equity Statement 50 Copyright ©2018 John Wiley & Son, Inc. Reports changes in owner’s equity for a specific period of time Time period is the same as that covered by the income statement LO 5

51. Balance Sheet 51 Copyright ©2018 John Wiley & Son, Inc. Reports assets , liabilities, and owner's equity at a specific date Lists assets at top , followed by liabilities and owner’s equity Total assets must equal total liabilities and owner's equity S napshot of company’s financial condition at a specific moment in time (usually month-end or year-end ) LO 5

52. Statement of Cash Flows 52 Copyright ©2018 John Wiley & Son, Inc. Information on cash receipts and payments for a specific period of time Answers the following: Where did cash come from? What was cash used for? What was change in cash balance ? LO 5

53. 53 Copyright ©2018 John Wiley & Son, Inc. Which of the following financial statements is prepared as of a specific date? Balance sheet Income statement Owner's equity statement Statement of cash flows LO 5 Financial Statements

54. 54 Copyright ©2018 John Wiley & Son, Inc. LO 5 DO IT! 5 Financial Statement Items Presented below is selected information related to Flanagan Company at December 31, 2020. Flanagan reports financial information monthly. Equipment 10,000 Utilities Expense 4,000 Cash 8,000 Accounts Receivable 9,000 Service Revenue 36,000 Salaries and Wages Expense 7,000 Rent Expense 11,000 Notes Payable 16,500 Accounts Payable 2,000 Owner’s Drawings 5,000 a. Determine the total assets of at December 31, 2020. b. Determine the net income reported for December 2020. c. Determine the owner’s equity at December 31, 2020.

55. 55 Copyright ©2018 John Wiley & Son, Inc. LO 5 DO IT! 5 Financial Statement Items Flanagan reports financial information monthly. Equipment 10,000 Utilities Expense 4,000 Cash 8,000 Accounts Receivable 9,000 Service Revenue 36,000 Salaries and Wages Expense 7,000 Rent Expense 11,000 Notes Payable 16,500 Accounts Payable 2,000 Owner’s Drawings 5,000 a. Determine the total assets of at December 31, 2020. Cash $ 8,000 Accounts receivable 9,000 Equipment 10,000 Total assets $27,000

56. Service revenue $36,000 Rent expense 11,000 Salaries and wages expense 7,000 Utilities expense 4,000 Net income $14,000 56 Copyright ©2018 John Wiley & Son, Inc. LO 5 DO IT! 5 Financial Statement Items Flanagan reports financial information monthly. Equipment 10,000 Utilities Expense 4,000 Cash 8,000 Accounts Receivable 9,000 Service Revenue 36,000 Salaries and Wages Expense 7,000 Rent Expense 11,000 Notes Payable 16,500 Accounts Payable 2,000 Owner’s Drawings 5,000 b. Determine the net income reported for December 2020.

57. Total assets $27,000 Less: Notes payable expense 16,500 Less: Accounts payable 2,000 Net income $ 8,500 57 Copyright ©2018 John Wiley & Son, Inc. LO 5 DO IT! 5 Financial Statement Items Flanagan reports financial information monthly. Equipment 10,000 Utilities Expense 4,000 Cash 8,000 Accounts Receivable 9,000 Service Revenue 36,000 Salaries and Wages Expense 7,000 Rent Expense 11,000 Notes Payable 16,500 Accounts Payable 2,000 Owner’s Drawings 5,000 c. Determine the owner’s equity at December 31, 2020.

58. Appendix 1A Career Opportunities in Accounting 58 Copyright ©2018 John Wiley & Son, Inc. LO 6 Public Accounting Careers in auditing, taxation , and management consulting serving the general public . Private Accounting Careers in industry working in cost accounting , budgeting, accounting information systems , and taxation . Governmental Accounting Careers with the IRS, the FBI, the SEC, public colleges and universities , and in state and local governments. Forensic Accounting Uses accounting, auditing , and investigative skills to conduct investigations into theft and fraud .

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